Cost of Capital
Free CFA Level II lesson in Corporate Issuers. 13 min read, ~1,919 words.
WACC uses target capital structure weights, not book values; book values understate equity and bias WACC downward. Pure-play method: unlever with the comparable's tax rate and D/E, then relever with the subject firm's tax rate and D/E. A single corporate WACC for all projects creates adverse selection, rejecting safe projects...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- cost of capital
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